The Pros And Cons Of Enron Scandals

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In the early 2000’s, several companies were investigated following accounting scandals. These companies included Merrill Lynch and Goldman Sachs. According to Gary Giroux (2008), most of the scandals involved fraudulent earnings and/or fraud related to stock. It was because of these scandals that new legislation was created, with old legislation being revised. These scandals came as a result of lax regulations, and regulations that were not properly enforced. While the scandals did result in changes in legislation that have a positive effect, they were also the cause of losses to people around the world. Some investors still have concerns, and the economy was negatively impacted. This section will explore the Enron, WorldCom, Imclone, HeathSouth, …show more content…
Soon after, investigations began, which put into motion legislative reform. However, there were many actions that led to this. The first Enron scandal began in 1987, where one of there subsidiaries, Enron Oil, was using fraudulent practices. Enron’s auditor investigated, and found the fraudulent acts. He reported them to Enron’s audit committee, but Enron chose not to disclose the information to the U.S. Securities and Exchange Commission (SEC). Eventually, Enron was investigated for the fraud, but the focus of the investigations was on Louis Borget, the man who ran Enron Oil. Borget was punished, and Enron was allowed to continue. In 1989, Enron formed the Gas Bank, run by Jeffrey Skilling. Skilling wanted his division to use mark-to-market accounting. This meant that various trading contracts, including long-term gas delivery, would be recorded at the fair value price, rather than the now required historical cost. Because it was hard to put a fair value price on gas, math estimates were used, and were very optimistic. When Enron wanted to show additional income, the numbers would be manipulated to show even larger gains. Enron began to expand to electricity and other commodities, and commodity trading became Enron’s largest source of profit. All the prices were overstated, but Enron claimed that outside predictions that were less than what Enron stated were incorrect. This was used to …show more content…
However, Norton (2002), believed that WorldCom alone should not be blamed for the reactions of the market and the economy. He stated that the blame is on the accounting legislation and regulations, and that WorldCom was just a result. As for the effect on the economy, he considered that to be part of the business cycle.
The Imclone scandal in 2002 included insider-trading charges against the former CEO. After the FDA rejected a new drug, the CEO sold his shares. This is the scandal that Martha Stewart was included in, as the CEO allegedly let Stewart know about the rejection.
In 2003, HealthSouth was accused of fraud. This involved $1.4 billion in earnings. The former CFO, among others, pled guilty to the

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